Among the growing number of hedge fund-like strategies appearing in mutual fund form, investors can now choose from “global macro” funds. These funds can follow a myriad of investment philosophies, as demonstrated by the fact that the most cited global macro hedge fund index, the HFRI Macro Index, has six distinct sub-components: active trading index, discretionary thematic index, systematic diversified index, commodity index, currency index and multi-strategy index.
In the mutual fund world, most macro funds have found a home within either Morningstar’s multi-alternative or nontraditional bond categories. One size most certainly does not fit all in this space; however, there are common factors across global macro strategies.
For one, most global macro funds have the flexibility to trade across all major asset classes: equities, fixed income, commodities and currencies. Additionally, macro funds often take advantage of trends, perhaps related to major economic policies, capital flows or relative valuations, to name a few.
Idiosyncratic risk, or company specific risk, typically doesn’t play a large role, as macro managers tend to be more concerned with systematic risk exposure; that is, broad thematic exposure. Lastly, while the risk exposure in macro funds can vary widely, both across funds and within a single fund over time, these funds do tend to be directional, either long or short, as opposed to being tightly hedged. As such, investors in macro funds should be willing to bear meaningful risk at times, even if the risk exposures aren’t persistent.